Thursday, November 7, 2024

Employee versus independent contractor

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Estimated reading time: 4 minutes

  • Employers must ensure that they sign the correct agreement when appointing an employee.
  • An independent contractor is appointed to perform work or provide a specific service to another person or business.
  • Labour law governs the employment relationship, protecting the employee and not the independent contractor.
  • The Labour Relations Act, 1995, presumes a person to be an employee if certain factors are present, such as control over work or economic dependence.
  • Employers should ensure the terms of employment contracts are correctly worded and have a written independent contractor’s agreement when necessary.

Employers must ensure that they sign the correct agreement when appointing an employee. Employers should also be careful not to label someone as an ‘independent contractor’ when the person is in fact an ‘employee’ and vice versa.

An independent contractor is appointed to perform work or provide a specific service to another person or business. They are not employees of the employer as they perform the work under their own business and is regarded as a service provider. Furthermore, the independent contractor is not obligated to perform the work him- or herself and may make use of assistants or employees to assist or perform the work.

An employee, on the other hand, is defined in the Basic Conditions of Employment Act, 1997 (Act 75 of 1997) as any person, excluding an independent contractor, who works for another person or for the state and who receives, or is entitled to receive, any remuneration; and any other person who in any manner assists in carrying on or conducting the business of an employer.

Labour law governs the employment relationship, protecting the employee and not the independent contractor. Independent contractors need to approach the civil courts if there is a dispute regarding the contract/agreement, work done, payment, etc.

What does the law say?

Labour law also clarifies who is considered to be an employee. The Labour Relations Act, 1995 (Act 66 of 1995) sets out that, until the contrary is proven, a person who works for or renders services to any other person is presumed, regardless of the form of the contract, to be an employee if any one or more of the following factors are present:

  • The manner in which the person works is subject to the control or direction of another person.
  • The person’s hours of work are subject to the control or direction of another person.
  • In the case of a person who works for an organisation, the person forms part of that organisation.
  • The person has worked for that other person for an average of at least 40 hours per month over the last three months.
  • The person is economically dependent on the other person for whom he or she works or renders services.
  • The person is provided with tools of trade or work equipment by the other person.
  • The person only works for or renders services to one person.

This is not applicable if the person earns in excess of the earnings threshold (currently set at R254 317,67 per annum) as provided for in the Basic Conditions of Employment Act. If any one of the aforementioned factors are present, the employer has the duty to rebut the presumption and prove that the person is not an employee but rather an independent contractor.

If the work arrangement involves persons who earn amounts equal to or below the earning threshold, any of the contracting parties may approach the Commission for Conciliation, Mediation and Arbitration (CCMA), to make an advisory award on whether the person involved in the arrangement is an employee.

Have a contact in place

While the wording of the employment contract is important, the true nature of the relationship between the parties is even more so. Employers are urged to ensure the terms of employment contracts are correctly worded when they appoint employees.

Equally as important is that employers should have a written independent contractor’s agreement in place with that service provider if they make use of independent contractors. Take care not to treat independent contractors as employees, as this may result in a presumption of an employer-employee relationship being created, which may have severe consequences for the employer.

The LWO Employers Organisation assists employers to comply with labour law, and to use it to their advantage to protect their business. As a registered employers’ organisation with the Department of Employment and Labour, the LWO has the right to represent members at the Commission for Conciliation, Mediation and Arbitration (CCMA). Take note that this article is not legal advice – consult one of our legal advisors about any specific legal problem or matter. For more information, send an email to Anneline Scriven at anneline@lwo.co.za or info@lwo.co.za, or visit www.lwo.co.za.

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